By Alexei Oreskovic

SAN FRANCISCO |
Fri May 18, 2012 8:53pm EDT

SAN FRANCISCO (Reuters) – The historic initial public offering of Facebook Inc did not go as planned on Friday, as the social networking company’s sky-high valuation combined with trading glitches left the stock languishing near its offering price at the market close.

Facebook shares began trading late Friday morning and opened 11 percent above the $38 offering price, but after peaking at about $45 slid rapidly at the end of the day to close at $38.23. The IPO was the third-largest in U.S. history and valued eight-year-old Facebook at $104 billion.

The surprisingly weak debut of a stock that analysts had predicted would climb between 10 and 50 percent is not likely to dent the business prospects of Facebook, which boasts 900 million users and is upending business practices and social relationships around the world.

But the unexpected developments were a clear setback for Morgan Stanley, the lead underwriter on the deal, which sources said was forced to defend the $38 price level by buying shares on the open market. Many market participants said they expected the stock to remain under pressure next week.

The offering also proved an embarrassment for the NASDAQ: the opening was delayed as the exchange struggled with a huge volume of orders, and for much of the day there were long delays in order confirmation. The SEC said late Friday that it was reviewing the situation.

Social media companies and Internet companies that had hoped to benefit from a Facebook halo effect were instead dragged down Friday, with social gaming giant Zynga dropping almost 15 percent.

Analysts said Facebook may simply have over-reached in raising the IPO price range, pricing at the top of the range and increasing the size of the offering earlier in the week.

“The underwriters got greedy on behalf of selling shareholders and bumped the price high enough that they didn’t get much of a bump on the first day,” said Bill Smead, chief investment officer at Smead Capital Management, which did not buy Facebook shares in the IPO. “They increased the size of the deal and that really did a number on it.”

Skeptics have argued all along that a valuation of more than $100 billion — about equivalent to Amazon.com Inc and exceeding that of Hewlett-Packard Co and Dell Inc combined — was far too high for a company that posted $1 billion in profit and $3.7 billion in revenue in 2011.

Concerns about Facebook’s earnings potential were highlighted by General Motors’ announcement this week that it would no longer buy paid advertising on Facebook.

“You don’t need more than a small pencil and napkin to do a valuation on this, to say there are heroic assumptions in earnings growth to keep this at $100 billion, much less $115 billion or $120 billion,” said Dave Rolfe, fund manager at River Park Wedgewood Fund, which does not own shares in Facebook.

“I know there’s a lot of excitement and exuberance, but it seemed today that the market is starting to do some hard valuation math early on.”

Facebook’s opening day on Wall Street does not bode well for the stock’s performance in the days ahead, said Channing Smith, portfolio manager at Capital Advisors Growth, which does not own shares in Facebook.

“If you’re an investment banker or if you’re long the stock, I would definitely be a bit worried as we walk away to the weekend,” he said.

The weak IPO may also give pause to private investors in Silicon Valley who have been pouring money into next-generation Internet companies at very high valuations in the hope of eventually taking them public.

MEDIA CIRCUS

At Facebook’s headquarters in Silicon Valley, the day began with company founder and Chief Executive Mark Zuckerberg, 28, symbolically ringing the opening bell for stock trading on Friday morning.

Wearing his trademark black hoodie, Zuckerberg, whose shares are worth nearly $20 billion and who retains voting control over the company, hugged and high-fived Sheryl Sandberg, Facebook’s chief operating officer, who is credited with bringing crucial business discipline to a company founded in a Harvard dorm room.

The area outside Facebook’s offices was packed with photographers, more than a dozen television trucks, and a TV news helicopter hovering overhead.

Outside Nasdaq headquarters in New York, crowds also gathered, even as exchange officials struggled to sort out trading problems that left investors guessing whether their buy and sell orders had actually been executed.

The IPO minted thousands of new paper millionaires among Facebook’s 3,500 employees — and a handful of billionaires among its founders and early investors. More than half of the proceeds of the IPO will go to existing shareholders, including early backers such as Accel Partners and Russia’s DST Global.

In the run-up to the IPO, demand from institutional investors was strong, and many analysts had expected an influx of retail investors keen on owning a slice of a cultural phenomenon regardless of price. But that did not materialize.

“Flippers who waited all day for a pop that did not come decided to throw in the towel and get out,” said Mohannad Aama, managing director at Beam Capital Management LLC in New York.

“That group also includes people who over-extended themselves in getting more shares than they can afford to hold — whether they got it from the syndicate or from the open market once it opened around noon.”

Still, from Facebook’s perspective, the stock performance could be seen as reflecting smart pricing: Zuckerberg and early investors pocketed maximum gains and left little of the easy money on the table.

“You want to price the offering correctly. Institutional buyers get a little bump and the company raises the right amount of money,” said Kevin Hartz, co-founder and CEO of Eventbrite, an online ticketing startup that is integrated with Facebook’s platform. “If the stock has a massive bump on day one, that means you misread market demand and the company could have raised more money with the same amount of dilution, or could have raised the same amount of money with less dilution.”

BATTLE OF THE GIANTS

Facebook faces many challenges as it takes its place beside Google, Apple and Amazon as one of the giant public companies defining the next-generation Internet economy. Google in particular views Facebook as a mortal threat and is moving aggressively to integrate social networking features across its products.

At the same time, scores of young companies are building new products and services, in some cases on top of the Facebook platform and in some cases in competition with it, and attracting huge amounts of investment capital.

A handful of such so-called Web 2.0 companies, including Zynga Inc, LinkedIn Corp, Yelp Inc and Groupon Inc, have already gone public, and others have been acquired by the industry giants. All of those stocks fell on Friday in sympathy with Facebook’s weaker-than-expected debut.

In an indication of the land grab now under way in the Internet world, Facebook in April spent $1 billion to acquire Instagram, a tiny photo-sharing company with lots of users but no revenue. A Facebook rival, social scrap-booking site Pinterest, raised money earlier this week at a valuation of $1.5 billion in a sign that venture capitalists and other private investors still see enormous potential in Web 2.0 companies.

Many of Facebook’s users spend hours a day on the site and share enormous amounts of personal information. That in turn enables Facebook to target its advertising to people’s specific interests, and many analysts believe the huge store of personal information gives Facebook an advantage that Google and other cannot match.

“Literally everything you see on the Internet, you could see inside Facebook — but done with much more of the social graph built into it,” said Siva Kumar, CEO of e-commerce company TheFind. “In a way, they operate the mall, and everybody in the mall will pay some way or the other to Facebook.”

Analysts say the company has vast untapped opportunities in mobile computing, where it has been weak thus far, and potentially in other Internet services such as email and search. Zuckerberg, though unproven as a public company CEO, is widely admired as a product visionary who has done a masterful job in continually improving the Facebook experience.

Skeptics, though, note that only a small percentage of Facebook users respond to advertising on the site. Google retains a big advantage in that regard, because advertising related to specific Internet searches is by nature far more relevant and thus more valuable.

In Silicon Valley, though, the conventional wisdom is that Facebook and its social media brethren will be an increasingly important force in the business world for many years to come.

And no matter how the industry dynamics unfold over the long term, the influx of wealth arising from Facebook’s extraordinary growth has already helped drive a mini-boom in San Francisco Bay Area real estate. Income tax revenues related to the IPO will cut the state of California’s budget deficit by an estimated $2 billion.

(Additional reporting by Alistair Barr, Noel Randewich, Sarah McBride, Gerry Shih and Edwin Chan in San Francisco, Jennifer Hoyt Cummings, Jessica Toonkel, John McCrank, David Gaffen, Liana Baker, Yinka Adegoke, Ed Krudy and Olivia Oran in New York; Editing by Jonathan Weber, Steve Orlofsky and Tiffany Wu; Editing by Gary Hill)

Article source: http://feeds.reuters.com/~r/reuters/technologyNews/~3/B9tXnVZiSQY/net-us-facebook-idUSBRE84G14Q20120519

By Josie Cox and Tarmo Virki

Fri May 18, 2012 5:19am EDT

LONDON/HELSINKI, May 18 (IFR/Reuters) – Nokia Oyj is tearing through its cash reserves at an unsustainable rate, raising what some analysts say are serious questions about the struggling Finnish phone maker’s ability to stabilize its finances in the months ahead.

With the cost of Nokia’s debt rising, the most bearish of analysts in a Reuters poll said the company could even be at risk of default if it fails to slow the burning of its cash.

Over the past five quarters, the onetime darling of mobile telecoms has eroded its cash pile by 2.1 billion euros ($2.7 billion) – a rate that would wipe out its entire 4.9 billion euros reserves in a couple years.

Analysts on average expect the company will burn through almost 2 billion euros more in just three quarters, while the most bearish see the company wiping out its 4.9 billion euros net cash buffer completely next year, a Reuters poll of 30 banks and brokerages showed on Friday.

“In our opinion, the company’s ability to repay even its shorter-term 2014 bond could be an issue,” said Societe General credit analyst Juliano Torii.

The company, which had more than 10 billion euros in cash on hand in 2007, has two bond issues outstanding, 1.25 billion euros of 5.5 percent bonds maturing in 2014 and 500 million of 6.75 percent notes due in 2019.

The bonds – both junk-rated by Fitch and Standard Poor’s – are trading at record wides versus mid-swaps (a money market benchmark), at around 400 basis points and 683 bp respectively. And those levels may still not be wide enough, some say.

“Nokia’s spreads do not reflect the severity of the company’s situation,” said Torii.

It’s also getting more expensive to insure against default.

Five-year credit default swaps (CDS) were at 749 bp on Friday – an all-time high, according to Markit. Since its year-low of 309 in late January, it has therefore increased some 142 percent. According to according to Gavan Nolan, director of credit research at Markit, this implies a default probability of 49 percent over the next five years.

A Nokia spokesman said improving cash flow was an important goal.

“Nokia is implementing a decisive action plan to position our company for future growth and success,” spokesman James Etheridge said. “The main focus of these actions is on lowering the company’s costs, improving cash flow and maintaining a strong financial position.”

NO LIGHT FROM LUMIA

Nokia, which once ruled the mobile phone roost, was wrongfooted by the rise of smartphones. And while it may have hoped the iPhone phenomenon was close to running its course, Apple Inc last month said quarterly profit had almost doubled in the first quarter of 2012, quieting talk that its days of sharp growth were over.

Meanwhile Nokia’s response to the iPhone, the Lumia, has not so far demonstrated it can compete.

“Nokia’s Lumia was an attempt to catch up, but it was simply too little too late,” said Nancy Utterback, credit strategist at Aviva Investors.

“I would not rule out the possibility of Nokia being downgraded further,” Utterback said. “The company is in a negative spiral that will be hard to reverse.”

Societe Generale analysts this week downgraded Nokia stock – which was down 1.2 percent early on Friday, having slumped to its lowest in about 16 years – to a to “sell” and warned that the company’s operating losses and restructuring costs could accelerate a decline in sales.

“Such an additional fall could be enough to burn through most of Nokia’s existing cash pile and even bring into question Nokia’s very survival,” SocGen analyst Andy Perkins said in a note.

Not everyone is quite so pessimistic.

While the most bearish analysts doubt Nokia’s ability to retain a cash buffer, the average estimate in the Reuters poll was for the company to end 2012 with 2.8 billion euros in net cash.

If it can succeed in reducing the speed of its cash burn, it would be unlikely to face major hurdles in paying off its shorter-dated bond.

“The group appears to have sufficient liquidity, even under some reasonably onerous operating assumptions,” said Jens Vanbrabant, lead portfolio manager at European Credit Management.

And there is some optimism as Nokia gears up production of new smartphones using Microsoft Corp’s Windows Phone software. Analysts on average expect Nokia to sell 46 million of the phones next year, compared with 20 million expected this year.

But the rapid reversal in the company’s fortunes has given Nokia a steep hill to climb.

“There are chances for Nokia to shape up and recover, but it’s going to be tough,” one corporate banker said. “The TMT market is fast moving, and even one slip-up can cost a company its whole future.”

If Nokia fails to improve its fortunes, some bankers say Microsoft could become a white knight. After all, not only is Lumia’s software based on that of Microsoft, it also happens to be Nokia Chief Executive Stephen Elop’s former employer.

Microsoft is already paying Nokia $1 billion a year to use its software on Lumia smartphones. And some investment bankers familiar with the technology sector said the support could extend well beyond that amount, if Nokia’s problems intensify.

($1 = 0.7869 euros)

(Editing by David Holmes)

Article source: http://feeds.reuters.com/~r/reuters/technologyNews/~3/kYgVlj-xiVU/us-nokia-cash-idUSBRE84H0BD20120518

By Alexei Oreskovic

Fri May 18, 2012 12:30am EDT

(Reuters) – Investors are bracing for Facebook’s Wall Street debut on Friday after the world’s No.1 online social network raised about $16 billion in one of the biggest initial public offerings in U.S. history.

Valued at $104 billion, Facebook is larger than Starbucks Corp and Hewlett-Packard combined, sparking intense speculation on how much higher its valuation will rise once shares start trading.

“A 15 to 20 percent pop is in the realm of possibility,” said Tim Loughran, a finance professor at the University of Notre Dame. “Given they already moved their IPO range up and increased the size, that’s bullish to begin with.”

Facebook priced its offering at $38 a share on Thursday, but the price could be higher when shares begin trading under the FB symbol on the Nasdaq at around 11 a.m. Eastern Time.

Some expect shares could rise 30 percent or more on Friday, despite ongoing concerns about Facebook’s long-term money-making potential. An average of Morningstar analyst estimates puts the closing price for Facebook shares tomorrow at $50.

The IPO, expected to mint more than a thousand paper millionaires at the company, has received wall-to-wall media coverage and sparked hopes of a boom in sales of everything from San Francisco Bay Area real estate to automobiles.

Facebook employees marked the event with an all-night “hackathon” at the company’s Menlo Park, California headquarters starting on Thursday evening, a tradition in which programmers work on side projects that sometimes turn into mainstream offerings.

Facebook’s 28-year-old founder and Chief Executive Mark Zuckerberg was expected to ring a bell at the company’s Silicon Valley headquarters on Friday morning to kick off trading on the Nasdaq.

Founded in a Harvard dorm room in 2004, Facebook has grown into the world’s dominant social network with 900 million users.

At $38 a share, Facebook would trade at over 100 times historical earnings versus Apple Inc’s 14 times and Google Inc’s 19 times.

For all the high expectations surrounding Facebook, the company faces challenges maintaining its growth momentum.

Some investors worry the company has not yet figured out a way to make money from the growing number of users who access Facebook on mobile devices such as tablets and smartphones. Meanwhile, revenue growth from Facebook’s online advertising business, which accounts for the bulk of its revenue, has slowed in recent months.

“With mobile usage growth exceeding desktop, monetization in the near term could be reduced given little-to-no ad coverage on mobile, challenged by limited screen sizes,” said a report last week from Susquehanna Financial Group.

GM said on Tuesday it would stop placing ads on Facebook, raising questions about whether display ads on the site are as effective as traditional media.

(Reporting By Edwin Chan; Editing by Ryan Woo)

Article source: http://feeds.reuters.com/~r/reuters/technologyNews/~3/-pBffBgZRwU/us-facebook-idUSBRE84G14Q20120518

By Miyoung Kim

SEOUL |
Thu May 17, 2012 3:38am EDT

SEOUL (Reuters) – Apple Inc will struggle to cut its reliance on rival Samsung Electronics for component supplies, analysts and industry sources said on Thursday, despite speculation that it has begun reducing its use of Samsung memory chips.

Samsung has lost 6 percent of its value, or $11 billion, since a Taiwanese trade news outlet reported on Wednesday that Apple had placed big new orders with Japanese chipmaker Elpida for dynamic random access memory (DRAM) chips.

The report has stoked concerns among Samsung investors that Apple wants to help turn the struggling Elpida, now in bankruptcy protection, into a much bigger supplier to the U.S. tech giant, partly at the expense of South Korea’s Samsung.

Apple is Samsung’s largest customer, buying chips and displays, but the pair are also bitter rivals for the sale of smartphones and tablets and are engaged in a patent war.

But tech analysts in the United States and South Korea said they doubted the report by Taiwan’s DigiTimes, if confirmed, would signal major damage for Samsung and for its supplier links to Apple, despite the fierce selloff in Samsung shares.

“Apple has been diversifying its suppliers and the deal with Elpida had no major impact on other major suppliers as Elpida’s share of the global mobile DRAM market is quite small,” said one source with direct knowledge of Elpida’s sales breakdown.

The source said Elpida was already selling more than half of its mobile DRAM chips to Apple – an estimate supported by Merrill Lynch – and that its current production offered limited scope in the short term to take market share from Samsung, which controls more than half of the global mobile DRAM market.

“(There’s) nothing new in our view given Elpida usually assigns about 40-60 percent of its mobile DRAM capacity for Apple according to our channel checks,” Merrill Lynch analyst Simon Woo said.

Lee Sun-tae, of NH Investment Securities, agreed: “The market is overreacting to the news. Mobile DRAM accounts for only 10 percent of Samsung’s overall operating profit …”

DIVERSIFYING, NOT DITCHING: ANALYSTS

U.S.-based Micron Technology Corp is in talks to acquire Elpida’s business as the Japanese firm tries to restructure after tough market conditions and global competition drove it into bankruptcy protection.

Apple did not response to queries on the report and Micron declined to comment. Samsung and Elpida’s court-appointed trustees also declined to comment.

Apple has been facing supply constraints, with iPhone sales soaring to 35.1 million last quarter, leading some analysts to conclude that the California-based company is more worried about a free-flowing supply chain than reliance on Samsung.

“No company wants to have just one supplier. Just on that basis I think they’re probably just shifting the (DRAM) balance, looking for equilibrium between two or three suppliers,” said Monika Garg, an analyst at Pacific Crest.

“I don’t think Apple would want to spoil their relationship with Samsung. They are their foundry.”

A major shift away from Samsung could also be complicated and costly for Apple, analysts said, adding that Samsung currently supplied Apple with high-end DRAM chips which were faster and more power-efficient than Elpida’s main chips.

Samsung and fellow South Korean chipmaker SK hynix, whose shares were also hit on Wednesday by the Apple-Elpida news, make chips with transistors that are 20 to 30 nanometers apart, giving them superior performance to Elpida’s 40-nanometer class, according to analysts.

A nanometer is one millionth of a millimeter.

The mobile DRAM market is set to grow rapidly due to booming smartphone and tablet sales. SK hynix has around 22 percent of the market with Elpida on about 16 percent, analysts estimate.

Shares in Samsung were trading up 0.3 percent by 0450 GMT, after falling as much as 2.4 percent. Shares in SK hynix rallied sharply from Wednesday’s selloff, up 6 percent.

(Additional reporting by Noel Randewich in SAN FRANCISCO and Mari Saito in TOKYO; Editing by Mark Bendeich)

Article source: http://feeds.reuters.com/~r/reuters/technologyNews/~3/5cPtapaVtKo/us-elpida-idUSBRE84G01E20120517

By Jessica Toonkel

NEW YORK |
Wed May 16, 2012 9:01pm EDT

NEW YORK (Reuters) – Investors who want Facebook Inc shares when the No. 1 online social network goes public later this week may have lost the opportunity. TD Ameritrade and Fidelity’s brokerage arm both stopped accepting orders of Facebook shares as of Tuesday evening, according to representatives for each of the companies.

Morgan Stanley Co did the same, according to three advisers at the firm who declined to be named because they are not authorized to speak to the press. E*Trade Financial also stopped accepting orders as of 4 p.m. Eastern Tuesday, according to a client alert sent out that day.

Wells Fargo Co’s brokerage arm, Wells Fargo Advisors, stopped accepting new orders as of 4:00 p.m. EDT Wednesday, according to two advisers at the firm.

A Morgan Stanley spokesman and a Wells Fargo spokeswoman declined to comment.

Facebook is going public with almost a billion users, nearly $4 billion in annual revenue and a popular brand name.

On Monday Morgan Stanley, one of the 33 underwriters of the much anticipated IPO, told its advisers that it would cap the number of Facebook shares for each client at 500, according to four sources familiar with the situation. The goal is to make the shares widely available. But not everyone will get 500 shares, said the sources.

Some Morgan Stanley advisers with smaller accounts were surprised to learn they might have a chance to get shares for their clients, said one of the sources who is an adviser at the firm. Shares of popular IPOs would usually only be available to institutional investors and to top advisers who have sold IPOs in the past.

“It was a mad scramble,” the adviser said. The adviser had less than two days to contact clients to see if they were interested in Facebook and go through the “extensive paperwork,” the adviser said. The adviser said several clients did not get their paperwork in by the deadline on Tuesday evening.

An account alert sent out to E*Trade Financial Corp clients obtained by Reuters on Tuesday said the firm would no longer accept new conditional offers for the Facebook IPO as of 4 p.m. Eastern that day, though cancellation and modification of existing orders would still be permitted.

E*Trade was a last minute addition to Facebook’s list of 33 underwriters. Officials at the online brokerage were not immediately available for comment.

Fidelity Brokerage, part of privately held FMR Corp in Boston, says it closed the offering period to qualified retail clients and registered investment advisers on Tuesday evening.

“The demand from customers is high,” said Fidelity spokesman Stephen Austin. Fidelity has an exclusive retail distribution agreement with Deutsche Bank Securities, an underwriter in the Facebook deal.

(Reporting by Jessica Toonkel; Additional reporting by Jennifer Cummings, John McCrank, Joseph Giannone and Lauren Young; Editing by Gary Hill and Richard Chang)

Article source: http://feeds.reuters.com/~r/reuters/technologyNews/~3/olq2xsZXXb0/net-us-facebook-ipo-order-close-idUSBRE84F1A120120517